Question

Instructions Compute earnings per share data as it should appear in the 2020 income statement of Shiga Naoya Cor- poration. (Round to two decimal places.) E4.14 (LO4) (Change in Accounting Principle) Tim Mattke Company began operations in 2018 and for simplicity reasons, adopted weighted average pricing for inventory. In 2020, in accordance with other companies in its industry, Mattke changed its inventory pricing to FIFO. The pretax income data is reported below. Weighted- Year Average FIFO 2018 $370,000 $395.000 390,000 430,000 410,000 450,000 2019 2020 Instructions a. What is Mattke's net income in 2020? Assume a 20% tax rate in all years. b. Compute the cumulative effect of the change in accounting principle from weighted average to FIFO inventory pricing. e. Show comparative income statements for Tim Mattke Company, beginning with income before in- come tax, as presented on the 2020 income statement.

Answer 1

a) Net income in 2020= Pretax income under FIFO method-Tax

= $450000-(450000*20%)

= $360000

b) Calculation of the Cumulative effect of the change in accounting principle

Year	Weighted average	FIFO	Difference	Tax	Effect
2018	$370000	395000	(395000-370000)= $25000	(25000*20%)= 5000	(25000-5000)= $20000
2019	390000	430000	(430000-390000)= 40000	(40000*20%)= 8000	(40000-8000)= 32000
	Net effect				$52000

c)

	2018	2019	2020
Income before income tax	$395000	$430000	$450000
Less: Income tax expense (20%)	(395000*20%)= 79000	(430000*20%)= 86000	(450000*20%)= 90000
Net income	$316000	$344000	$360000

NOTE:- For any problem regarding the answer please ask in the comment section.